The Shenzhen Example: Where China's economic miracle began.

• Author: Wood, Barry D.

In 1980, Shenzhen was an unimportant fishing village adjacent to Hong Kong's new territories. Its population was thirty thousand.

Today Shenzhen is China's richest city on a per capita basis. Its population is thirteen million, having become the world's fastest-growing city ever. Shenzhen is a technology center--headquarters for Huawei and Tencent. It has the world's fourth-biggest container port and China's fifth-busiest airport.

During the forty years from 1980 to 2020, Shenzhen's economy averaged annual growth of 21 percent. There has never been anything like it.

What happened? How did this extraordinary transformation take place?

Deng Xiaoping came to power in 1978 determined to overcome the chaos and devastation of China's ten-year-long cultural revolution. Deng declared China open to the world, and in 1980 designated Shenzhen a special economic zone to test the principles of a market economy.

The results of China's opening succeeded beyond anyone's wildest expectations. Since 1980, a staggering 850 million Chinese have been lifted out of poverty.

Ultimately, China created six special economic zones and fourteen coastal regions where foreign investment and entrepreneurship were promoted. But Shenzhen was first to be allowed to overturn the strictures of communist economic orthodoxy. Citizens were allowed to buy land. Administered prices set by planners in Beijing were gradually abolished as market forces were allowed to determine prices. Similarly, wages were freed from state control. Foreign banks were allowed in and tax policy was used to attract investors.

The World Bank for two decades has pointed to southern China's pro-growth policies as a model for the developing world. Once closed to trade, today China is open. Startups are promoted and it is easy to start a business. China's private sector, virtually non-existent in 1978, now accounts for 70 percent of economic output.

When I first visited Shenzhen in 2005,1 was stunned to observe shoppers rushing into the aisles of the new Walmart Super Center when doors opened in the morning. I was further stunned to watch young store employees in red shirts sing the company song for a visiting journalist. This panorama of consumerism was a jolting wake-up call to how much China was changing. I thought back to the 1960s when angry Red Guards waved Little Red Books and sang the praises of Chairman Mao.

What would...